The staff presented a summary of stakeholder outreach conducted to evaluate the operability and consequences (including unintended consequences) of tentative decisions made on March 12, 2014, about the applicability of the related party tie breaker test for variable interest entities (VIEs).

After considering the staff analysis of that input, the Board decided to further modify the related party guidance for VIEs. Specifically, once it has been determined that a decision maker (that is, a single variable interest holder with the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance) is considered to be acting in an agency role after performing the primary beneficiary (PB) determination and has considered its direct and indirect interests (see previous tentative Board decision from March 12, 2014, for further discussion on indirect interests), there should not be a related party tie breaker test performed by any party in the related party group. Because the decision maker is an agent, the related party, as a group, should not be considered the PB.

However, if related parties are under common control in the related party group (and those related parties under common control have the characteristics of a PB), the related party tie breaker test must be performed for those parties under common control. The decision maker would not retain its agency role in this case.

Additionally, in instances in which substantially all of the activities of the VIE are conducted on behalf of a single variable interest holder in a related party group (in which the group has the characteristics of a PB), that single variable interest holder for which substantially all of the activities of the VIE are conducted on its behalf would be the PB and would consolidate the VIE. The evaluation of substantially all would be qualitative, considering all relevant facts and circumstances.

In instances in which (1) there are entities under common control that have the characteristics of a PB and (2) substantially all of the activities of the VIE are conducted on behalf of a single variable interest holder in the related party group but not in the common control group, the related party tie breaker test would be performed by the entities under common control.